INDIAN BID FOR ALROSA SHARES SPURNED

John Helmer

Sep. 14, 2011, 5:41 PM

By John Helmer, Moscow

There is no negotiation under way and no agreement between Alrosa and India's state-owned Minerals and Metals Trading Company, MMTC, for a private placement of Alrosa shares in Indian hands, Russian sources, including a high Alrosa official, told PolishedPrices.com today.

They were responding to a string of recent press reports from Mumbai claiming MMTC has been discussing a share buy with Alrosa worth an estimated $2 billion. The last valuation of the state-owned Russian diamond miner, whch was made public by its chief executive Fyodor Andreyev in March, indicated a target range of between $6 billion and $12 billion. In June Russia's Finance Ministry intimated that during 2012 and 2013 up to 14% of Alrosa shares might be sold to investors, with proceeds, the Ministry claimed, of up to $1.8 billion. This implies a semi-official valuation of the entire company at $13 billion.

A source close to Alrosa said today: "As far as I heard, the Indian government have said they don't mind if MMTC buys shares in a foreign diamond miner, but I didn't hear MMTC was going to buy Alrosa's shares. However, diamond business is not usually done that way, because the planning horizon of diamond companies is only several months long, not years, and their resources are rather short. Moreover, a strategic investor is interested in buying a controlling or at least a blocking stake, while a $2 billion worth stake in Alrosa is neither. An investment fund could be interested in such a stake. I don't think this deal will ever take place for real. It's some sort of speculation."

Mumbai press reports claim that a share deal was broached by India's Commerce Minister Anand Sharma when he met with the Russian Minister of Economic Development, Elvira Nabiullina, at a St. Petersburg convention in June. In Alrosa's current flow of rough diamond sales, Indian buyers account for roughly three-quarters of the stones, but because they are small sizes and are priced below the Alrosa average, the Indian export value in Alrosa's revenue total amounts to just 20%. Russian diamond sector sources say that heavy Indian borrowing and leveraging to finance diamond-buying makes MMTC an unreliable partner because falling market prices can trigger margin calls on loans to Indian cutters, and then uncontrolled selling of collateralized rough at whatever price the market can bear.

The Indian press reports, which appear to have been intended as encouragement to MMTC for offshore equity deals, suggest there have been "preliminary discussions with Alrosa's management in this regard" and that an investment in Alrosa is necessary to " ensure a steady supply of rough diamonds for India's $12.91 billion industry."

An Alrosa source told PPC: "I've read this in the papers too, but they [MMTC] haven't turned to Alrosa directly to buy anything." There has been no initiative from the Russian side, he added. "It's their business if they want the stake, not ours."